Sea Change or Status Quo: Has the Rule 37(e) Safe Harbor Advanced Best Practices for Records Management?

Transcription

1 Minnesota Journal of Law, Science & Technology Volume 11 Issue 1 Article Sea Change or Status Quo: Has the Rule 37(e) Safe Harbor Advanced Best Practices for Records Management? Philip J. Favro Follow this and additional works at: Recommended Citation Philip J. Favro, Sea Change or Status Quo: Has the Rule 37(e) Safe Harbor Advanced Best Practices for Records Management?, 11 Minn. J.L. Sci. & Tech. 317 (2010). Available at: The Minnesota Journal of Law, Science & Technology is published by the University of Minnesota Libraries Publishing.

2 FAVRO PJ. Sea Change or Status Quo: Has the Rule 37(e) Safe Harbor Advanced Best Practices for Records Management? MINN. J.L. SCI. & TECH. 2010;11(1): Sea Change or Status Quo: Has the Rule 37(e) Safe Harbor Advanced Best Practices for Records Management? Philip J. Favro* Is this maybe just hopeful thinking? Are we perhaps coming to a point where litigation requirements and business practices and best practices can become one and the same? Judge James D. Walker, Jr., Public Comment on Proposed Changes to the Federal Rules of Civil Procedure, I. Introduction II. Rule 37(e) Promoting Best Practices for Records Management in Litigation A. Background Giving Rise to Rule 37(e) No Duty to Preserve All Electronically Stored Information Relevant Information to Be Retained after Duty to Preserve Attaches Limited Guidance from Pre-Rule 37(e) Decisions B. Rule 37(e) s Effort to Balance Corporate and Litigation Imperatives A Limited Safe Harbor Protects Litigants from Excessive Preservation Obligations The Safe Harbor Does Not Insulate Organizations from Reasonable Litigation Demands The Safe Harbor Established an Intermediate Standard for Imposing Discovery Sanctions C. A National Standard for Guiding Records 2010 Philip J. Favro. Philip J. Favro is senior counsel with Packard, Packard & Johnson. Mr. Favro advises clients regarding government procurement practices, licensing and enforcing patent rights, and protocols for preserving electronic data. 317

3 318 MINN. J. L. SCI. & TECH. [Vol. 11:1 Management Decisions in Connection with Litigation III. Key Trends from Rule 37(e) Records Management Jurisprudence A. Records Management Strategy Must Consider Accountability to Third Parties B. The Good, the Bad, and the Ugly Examples of Reasonable and Unreasonable Records Management Policies The Good Gippetti v. United Parcel Service, Inc The Bad Connor v. Sun Trust Bank The Ugly Keithley v. Home Store.com Reasonable Retention Policies Can Effectively Address Organizational Needs in Relation to Litigation Requirements C. Modifying Records Management Policies: Timing and Scope Are Everything Whether and What Aspects of a Retention Policy Require Modification Harmonizing Retention Practices and Litigation Imperatives Requires an Effective Management Team IV. Suggested Practices for Addressing Litigation Requirements in Connection with Records Management Protocols A. Timely Implement an Effective Retention Policy B. Prepare for Lawsuits in Advance of Actual Litigation C. Closely Follow Records Management Practices D. Do Not Exclusively Rely on the Safe Harbor for Protection V. Conclusion I. INTRODUCTION Nothing surprises us anymore when it comes to the world of electronic discovery. Legion are the tales of over-reaching discovery requests, terabyte productions, and astronomical production costs. The 2006 amendments to the Federal Rules of Civil Procedure were supposed to change all that. After all, weren t the amended rules designed to streamline the discovery process, allowing parties to focus on substantive issues while

4 2010] 37(e) SAFE HARBOR 319 making discovery costs more reasonable? 1 Instead, it seems the rules have spawned more collateral discovery disputes than ever before about preservation and production issues. Is it any wonder that many are questioning whether the so-called ESI amendments 2 are living up to their billing? 3 Despite the overall shortcomings of the amendments, one rule is helping to clarify preservation and production burdens for electronically stored information: Federal Rule of Civil Procedure 37(e). 4 Rule 37(e) provides refuge from sanctions for spoliation of evidence when electronically stored information has been destroyed pursuant to the routine, good faith operation of an electronic information system. 5 Put in layman s terms, litigants may avoid sanctions even though their computer servers delete and other electronic data according to the server s programmed operation. 6 This so-called Safe Harbor is only available when the routine operation is carried out in good faith such that relevant data is retained after a preservation duty attaches See COMM. ON RULES OF PRACTICE & PROCEDURE, JUDICIAL CONFERENCE OF THE U.S.,SUMMARY OF THE REPORT OF THE JUDICIAL CONFERENCE COMMITTEE ON RULES OF PRACTICE AND PROCEDURE *2005) [hereinafter REPORT] available at 2. FED. R. CIV. P. 34 advisory committee s note (2006 Amendment to subdivision (a)) (generally describing computer-generated material as electronically stored information or ESI). 3. See Mary Mack, Total Revamp of Federal Rules of Civil Procedure?, DISCOVERYRESOURCES.ORG, Apr. 9, 2005, 4. Originally enacted as Federal Rule of Civil Procedure 37(f), an overall restyling of the Federal Rules in December 2007 caused it to be re-numbered as Federal Rule of Civil Procedure 37(e). Compare FED. R. CIV. P. 37 advisory committee s note (2006 Amendment) (explaining the operation of the new ESI rule), with STEVEN BAICKER-MCKEE ET AL., FEDERAL CIVIL RULES HANDBOOK (2007) (explaining how the 2007 amendments renumbered the rules). 5. FED. R. CIV. P. 37(e); see KCH Serv., Inc. v. Vanaire, Inc., No C, 2009 WL , at *1 (W.D. Ky. Jul. 22, 2009). 6. See Columbia Pictures Indus. v. Bunnell, No. CV FMCJCX, 2007 WL , at *13 14 (C.D. Cal. May 29, 2007) (holding the Safe Harbor insulated defendants from sanctions despite their failure to retain data stored in the random access memory of their computers), aff d, 245 F.R.D. 443 (C.D. Cal. 2007). 7. FED. R. CIV. P. 37 advisory committee s note (2006 Amendment); Ripley v. District of Columbia, No (EGS), slip op. at 9 (D.D.C. Jul. 2, 2009) (holding Rule 37(e) would not shield defendants from monetary

5 320 MINN. J. L. SCI. & TECH. [Vol. 11:1 As first proposed and enacted, the Safe Harbor was championed as a protection against absurd preservation obligations. 8 The rule would allow corporate America, along with governments, universities, and others, to safely eliminate electronic materials that did not have business value. 9 And this policy in turn would reduce operating costs associated with data retention. 10 At the same time, organizations would maintain electronically stored information pertinent to litigation. 11 Now that Rule 37(e) has been in place for three years, it is worth examining whether the Safe Harbor has lived up to this billing. The transition from concept to rule has not been seamless. 12 The Safe Harbor has been subject to criticism from a number of attorneys and legal scholars. 13 It has also caused some confusion with respect to when a party should suspend its computer system to preserve relevant information. 14 On the other hand, the new rule and its progeny of case law have provided guidance to organizations in preparing records sanctions given their failure to operate their system in good faith); MeccaTech, Inc. v. Kiser, No. 8:05CV570, 2008 WL , at *9 (D. Neb. Apr. 2, 2008) (finding that Rule 37(e) was not applicable given defendants intentional destruction or withholding of electronic data). 8. See COMM. ON RULES OF PRACTICE & PROCEDURE, JUDICIAL CONFERENCE OF THE U.S., PUBLIC HEARING ON PROPOSED AMENDMENTS TO THE FEDERAL RULES OF CIVIL PROCEDURE, 93 94, , (Feb. 11, 2005) [hereinafter PUBLIC HEARING] available at Thomas Y. Allman, The Case for a Preservation Safe Harbor in Requests for E-Discovery, 70 DEF. COUNS. J. 417 (2003). 9. See PUBLIC HEARING, supra note 8, at ; REPORT, supra note 1, at app. C See PUBLIC HEARING, supra note 8, at FED. R. CIV. P. 37 advisory committee s note (2006 Amendment); C.f. Gippetti v. United Parcel Serv., Inc., No. C RMW (HRL), 2008 WL , at *2 (N.D. Cal. Aug. 6, 2008) (denying discovery sanctions where the defendant had no reason to think that certain information purged pursuant to a routine data destruction system was relevant to discovery). 12. See REPORT, supra note 1, at app. F-7 8 (listing pros and cons of adopting the new rule). 13. See id.; PUBLIC HEARING, supra note 8, at (asking critical questions about the new rule); Daniel Renwick Hodgman, A Port in the Storm?: The Problematic and Shallow Safe Harbor for Electronic Discovery, 101 NW. U. L. REV. 259, 282 (2007) (expressing ambivalence about the adequacy of the Safe Harbor). 14. See infra Part II.B.2.

6 2010] 37(e) SAFE HARBOR 321 retention policies. 15 While not causing a sea change, Rule 37(e) is moving records management beyond the status quo. Organizations are receiving guidance on how to bring their policies in line with litigation requirements. This Article will consider these subjects in the following pages. Part II of this Article will delve into the background, text and purpose of the Safe Harbor as they relate to document management and preservation. It will also describe the intermediate standard for imposing sanctions that was crafted in connection with Rule 37(e). Part III will review key case law that has evolved since the implementation of Rule 37(e). It will additionally detail some best practices for records management derived from those decisions. In Part IV, this Article will describe some suggestions that litigants may follow to implement these best practices. II. RULE 37(e) PROMOTING BEST PRACTICES FOR RECORDS MANAGEMENT IN LITIGATION To understand why Rule 37(e) is helping companies with their document management efforts, it is worth exploring the background of the rule itself, along with its text and the corresponding Advisory Committee Note. This part will analyze why cases issued before the promulgation of Rule 37(e) were limited in their capacity to develop cogent e-discovery principles. It will also show that only a uniform national standard could provide needed clarity so litigants could confidently implement document retention protocols. A. BACKGROUND GIVING RISE TO RULE 37(e) The Safe Harbor has its origins in case law that began to develop in the mid-to late-1990s as and other electronic information became ubiquitous. 16 Decisions issued by scattered jurisdictions in the ensuing years described parties preservation obligations with respect to computer data. The reasoning from those decisions seemed to provide guidance on 15. See infra Part III. 16. The principles regarding preservation inherent in Rule 37(e) may be traced back to analogous decisions addressing productions of paper documents. See, e.g., Kozlowski v. Sears, Roebuck & Co., 73 F.R.D. 73 (D. Mass. 1976) (affirming default judgment sanction for defendant s refusal to address its problematic document retention system).

7 322 MINN. J. L. SCI. & TECH. [Vol. 11:1 which litigants particularly organizations generating large amounts of data could rely to develop reasonable retention policies. 1. No Duty to Preserve All Electronically Stored Information In Concord Boat Corp. v. Brunswick Corp., it was held that companies had no duty to preserve all of their communications. 17 Keeping every single could not be a workable standard, even if all such was arguably pertinent to future litigation. 18 Such a burden would expose litigants to cost prohibitive and impractical preservation requirements. 19 Similar logic is found in Zubulake v. UBS Warburg LLC, which reasoned that an organization s operations would be crippled if it were forced to retain all of its paper and electronic data. 20 This view also found support in professional journals 21 and academic scholarship 22 published before the enactment of Rule 37(e). 23 Given the burdens associated with data preservation, it was even posited that relevant data should not be preserved until the issuance of an applicable discovery order Concord Boat Corp. v. Brunswick Corp., No. LR-C , 1997 WL , at *4 5 (E.D. Ark. Aug. 29, 1997). 18. Id. at * Id. at * Zubulake v. UBS Warburg LLC (Zubulake IV), 220 F.R.D. 212, 217 (S.D.N.Y. 2003); see also Wiginton v. CB Richard Ellis, No. 02 C 6832, 2003 WL , at *4 (N.D. Ill. Oct. 27, 2003) ( A party does not have to go to extraordinary measures to preserve all potential evidence... [i]t does not have to preserve every single scrap of paper in its business. ) (citing China Ocean Shipping (Group) Co. v. Simone Metals Inc., No. 97 C 2694, 1999 WL , at *3 (N.D. Ill. Sept. 30, 1999) and Danis v. USN Commc ns, Inc., No. 98 C 7482, 2000 WL , at *32 (N.D. Ill. Oct. 20, 2000)). 21. See e.g., SEDONA CONFERENCE WORKING GROUP ON BEST PRACTICES FOR ELECTRONIC DOCUMENT RETENTION & PRODUCTION, THE SEDONA PRINCIPLES: BEST PRACTICES RECOMMENDATIONS & PRINCIPLES FOR ADDRESSING ELECTRONIC DOCUMENT PRODUCTION 20 (2004) ( At a minimum, organizations need not preserve every shred of paper, every or electronic document, and every backup tape. ). 22. See, e.g., Martin H. Redish, Electronic Discovery and the Discovery Matrix, 51 DUKE L.J. 561, 621, 623 (2001) (arguing that companies should not be required to maintain all electronic data as this would be impractical and cost prohibitive). 23. Id. at Id. Such a view finds little support in the case law that has developed since the enactment of Rule 37(e). See infra Part III.

8 2010] 37(e) SAFE HARBOR Relevant Information to Be Retained after Duty to Preserve Attaches Even though pre-rule 37(e) case law did not require litigants to preserve all information, it typically expected them to maintain data once they knew or should reasonably have known such data would be relevant to anticipated or actual litigation. 25 This standard seemed to apply regardless of the given circumstances of a particular case. On the one hand, a preservation duty could be triggered at the time an action begins. 26 In Concord Boat Corp. v. Brunswick Corp., plaintiff s filing of a complaint provided notice that relevant materials should be retained. 27 On the other hand, the duty to preserve in Inventory Locator Service, LLC v. PartsBase, Inc. did not arise until almost 16 months after the action commenced. 28 In contrast to those cases, the obligation to preserve attached in E*Trade Securities LLC v. Deutsche Bank well before the complaint was filed since litigation was already anticipated by the parties at that time Limited Guidance from Pre-Rule 37(e) Decisions Though helpful in giving some direction on data retention, the guidance provided by pre-rule 37(e) case law was limited at best. 30 The decisions in question were typically issued by trial courts and did not carry precedential value. 31 Case holdings 25. See, e.g., Zubulake IV, 220 F.R.D. at ; Wiginton, 2003 WL , at * Concord Boat Corp. v. Brunswick Corp., No. LR-C , 1997 WL , at *4 (E.D. Ark. Aug. 29, 1997). 27. Id. 28. Inventory Locator Serv., LLC v. PartsBase, Inc., No MaV, 2005 WL , at *13 (W.D. Tenn. Oct. 19, 2005). 29. E*Trade Sec. LLC v. Deutsche Bank, AG, 230 F.R.D. 582, 584 (D. Minn. 2005) (ordering sanctions against the defendant due to its systemic destruction of evidence after the duty to preserve was triggered). 30. See Robert Douglas Brownstone, Collaborative Navigation of the Stormy e-discovery Seas, 10 RICH. J.L. & TECH. 53, 29 (2004), at Id. But see Morris v. Union Pac. R.R., 373 F.3d 896, 905 (8th Cir. 2004) (reversing adverse inference instruction where evidence had been destroyed pursuant to a routine document retention policy before a preservation duty attached); Residential Funding Corp. v. DeGeorge Fin. Corp., 306 F.3d 99, 108 (2d Cir. 2002) (holding that an adverse inference sanction may be imposed for negligent destruction of evidence).

9 324 MINN. J. L. SCI. & TECH. [Vol. 11:1 were also frequently inconsistent, 32 resulting in confusion for organizations trying to implement good faith retention practices. 33 For example, different courts applied varying standards of culpability to determine whether sanctions were appropriate for litigants failure to preserve electronically stored information. The Second Circuit applied a negligence standard when issuing a negative inference jury instruction. 34 That meant litigants could be sanctioned if they knew or should have known that data they caused to be deleted would be relevant in litigation. 35 In contrast, the Tenth and Eleventh Circuits refused to do so absent a finding of bad faith and intentional misconduct. 36 Still other jurisdictions required an intermediate standard before considering such a drastic measure. 37 Besides the inconsistencies, many decisions failed to appreciate that retention policies have a crucial impact on the success of an organization. 38 Under such policies, organizations program their servers to catch phishing s, quarantine suspected viruses, and block junk mail. 39 Computer systems are also designed to archive and delete stale By 32. See REPORT, supra note 1, at Id.; see PUBLIC HEARING, supra note 8, at Residential Funding, 306 F.3d at 108 ( The sanction of an adverse inference may be appropriate in some cases involving the negligent destruction of evidence because each party should bear the risk of its own negligence. ). 35. Id. 36. Aramburu v. Boeing Co., 112 F.3d 1398, 1413 (10th Cir. 1997) (finding that bad faith is a condition precedent to issuing an adverse inference instruction); Turner v. Public Serv. Co. of Colo., 563 F.3d 1136, (10th Cir. 2009) ( But if the aggrieved party seeks an adverse inference to remedy the spoliation, it must also prove bad faith. ); Bashir v. Amtrak, 119 F.3d 929, 931 (11th Cir. 1997) (failing to preserve evidence will result in a negligent inference instruction upon a showing of bad faith); Phillips v. Aaron Rents, Inc., 262 F. App x. 202, 210 (11th Cir. 2008). 37. See, e.g., Stevenson v. Union Pac. R.R. Co., 354 F.3d 739, 747 (8th Cir. 2004) (rejecting negligence standard and instead holding that [T]here must be some indication of an intent to destroy the evidence for the purpose of obstructing or suppressing the truth in order to impose the sanction of an adverse inference instruction ); Med. Lab. Mgmt. Consultants v. Am. Broad. Cos., Inc., 306 F.3d 806, 824 (9th Cir. 2002) (same). 38. See PUBLIC HEARING, supra note 8, at 369; Allman, supra note 8, at PUBLIC HEARING, supra note 8, at Id.; REPORT, supra note 1, at app. C-83.

10 2010] 37(e) SAFE HARBOR 325 preventing an influx of spam and by eliminating aged s, open space is created on existing servers. 41 This process, in turn, permits companies to reduce operating expenses since they are not obligated to expand server capacity to house data that has little or no business value. 42 Issuing casedeterminative sanctions for pursuing best business practices particularly based on a negligence standard arguably places an undue burden on companies. 43 Nevertheless, legal considerations including litigation must play a part in the planning and implementation of retention policies. 44 To ignore those considerations in fashioning and suspending automatic deletion protocols could expose an organization to liability even for the most reasonable discovery demands. How could these countervailing considerations be harmonized? 45 B. RULE 37(e) S EFFORT TO BALANCE CORPORATE AND LITIGATION IMPERATIVES 1. A Limited Safe Harbor Protects Litigants from Excessive Preservation Obligations The answer was a limited Safe Harbor. 46 As envisioned by the Advisory Committee, the Safe Harbor would shield organizations from sanctions when data was lost as a result of the routine, good faith operation of an electronic information system. 47 In its Judicial Conference Report, the Advisory Committee took pains to emphasize the unreasonable burdens that parties would face without the Safe Harbor. 48 Indeed, it 41. PUBLIC HEARING, supra note 8, at See Redish, supra note 22, at 623. These same considerations apply to data stored on back-up tapes for archival or disaster recovery purposes. See also PUBLIC HEARING, supra note 8, at See REPORT, supra note 1, at app. C Phillip M. Adams & Assoc., L.L.C. v. Dell, Inc., 621 F. Supp. 2d 1173, 1193 (D. Utah 2009); Kozlowski v. Sears, Roebuck & Co., 73 F.R.D. 73 (D. Mass. 1976). 45. See Cache La Poudre Feeds, LLC v. Land O Lakes, Inc., 244 F.R.D. 614, 623. (D. Colo. 2007) (explaining that parties often face an intractable dilemma: either preserve voluminous records for a [sic] indefinite period at potentially great expense, or continue routine document management practices and risk a spoliation claim at some point in the future ). 46. FED. R. CIV. P. 37(e). 47. Id. 48. REPORT, supra note 1, at app. C-83.

11 326 MINN. J. L. SCI. & TECH. [Vol. 11:1 appeared the Committee was marching lockstep with the business community s view that the Safe Harbor was the answer to their document preservation problems. 49 For example, if companies were required to suspend their retention policies at the moment litigation was anticipated, the upsurge in retained data could overwhelm many computer systems. 50 It is also questionable whether such data would be relevant in litigation. 51 As a result, the Advisory Committee concluded that it would be [u]nrealistic to expect parties to stop such routine operation of their computer systems as soon as they reasonably anticipate litigation. 52 Thus, it appeared that companies could continue using their records management policies to rid themselves of unwanted data without being sanctioned. This general rule was subject to certain exceptions, of course. 53 But the point for organizations was that courts would now be forced to examine a litigant s document retention protocols through more than just the lens of litigation. Courts at least in theory would have to consider the nature and motives behind a company s decisionmaking process. Organizations might finally have a fighting chance in court The Safe Harbor Does Not Insulate Organizations from Reasonable Litigation Demands While the Safe Harbor provided some key protections to corporate America, the new rule also addressed some of the lingering concerns from the plaintiffs bar. 55 The Safe Harbor only applied to data that was destroyed due to the ordinary 49. PUBLIC HEARING, supra note 8, at REPORT, supra note 1, at app. C-83; Redish, supra note 22, at REPORT, supra note 1, at app. C Id. at app. C-83, F See infra Part III. 54. Thomas Y. Allman, Defining Culpability: The Search for a Limited Safe Harbor in Electronic Discovery, 2 FED. CTS. L. REV. 65, 83 (2007) ( [B]y assuring public and private entities, both large and small, that common sense will be applied to the review of their preservation decisions, it should help break the logjam for those that have desired, but hesitated, to implement realistic and balanced policies and procedures to meet their business and litigation needs. ). 55. PUBLIC HEARING, supra note 8, at (arguing that a prior draft of the Safe Harbor seemed to encourage the destruction rather than the retention of data).

12 2010] 37(e) SAFE HARBOR 327 functions of a computer system. 56 It did not prevent sanctions when data was manually deleted. 57 For example, the Safe Harbor afforded no protection to a company that relied on its individual employees to manually archive and delete electronic data. 58 Nor could it shelter bad faith data destruction, 59 such as intentionally deleting database information, 60 s, 61 web pages, 62 metadata, 63 software, 64 data on hardware 65 or other records once the duty to preserve attached. 66 The Safe Harbor would also yield in other exceptional circumstances. 67 An organization could be required to modify certain aspects of a retention policy once a preservation duty was triggered. 68 Companies could not simply allow their 56. The Safe Harbor does not apply to the destruction of paper documents. See Phillip M. Adams & Assoc., L.L.C. v. Dell, Inc., 621 F. Supp. 2d 1173, 1191 (D. Utah 2009); FED. R. CIV. P. 37 advisory committee s note (2006 Amendment). 57. See Phillip M. Adams, 621 F. Supp. 2d at Id.; Connor v. Sun Trust Bank, 546 F. Supp. 2d 1360, (N.D. Cal. 2008). 59. Keithley v. Home Store.com, Inc., No. C SI (EDL), 2008 WL , at *16 (N.D. Cal. Aug. 12, 2008). 60. Id., at * Pandora Jewelry, LLC v. Chamilia, LLC, No. CCB , 2008 WL , at *8 9 (D. Md. Sept. 30, 2008) (holding the Safe Harbor did not apply since defendant was grossly negligent for failing to preserve ). 62. Arista Records LLC v. Usenet.com, Inc., 608 F. Supp. 2d 409, (S.D.N.Y. 2009) (holding that the Safe Harbor did not insulate defendants from adverse inference sanction where they failed to preserve relevant web pages after a preservation duty was triggered). 63. See Philip J. Favro, A New Frontier in Electronic Discovery: Preserving and Obtaining Metadata, 13 B.U. J. SCI. & TECH. L. 1, 20 (2007). 64. KCH Serv., Inc. v. Vanaire, Inc., No C, 2009 WL , at *1 (W.D. Ky. Jul. 22, 2009) (holding the Safe Harbor would not protect defendants from an adverse inference sanction given their deletion of software and their unreasonable failure to keep other electronic data after the duty to preserve attached). 65. Stratienko v. Chattanooga-Hamilton County Hosp. Auth., No. 1:07- CV-258, 2009 WL , at *4 (E.D. Tenn. Jul. 16, 2009) (holding that defendants re-imaging of hard drive after duty to preserve attached fell outside the scope of the Safe Harbor). 66. In re Krause, 367 B.R. 740, (D. Kan. 2007) (holding that defendants use of a wiping software was not protected under the Safe Harbor); Nucor v. Bell, 251 F.R.D. 191, 204 (D.S.C. 2008) (ordering sanctions for defendant s destruction of a USB flash drive). 67. FED. R. CIV. P. 37(e). 68. FED. R. CIV. P. 37 advisory committee s note (2006 Amendment) ( Good faith in the routine operation of an information system may involve a

13 328 MINN. J. L. SCI. & TECH. [Vol. 11:1 computer systems to destroy relevant data at the same time they obliterated useless information. 69 A litigant s action or inaction on this issue would undoubtedly bear on whether the operation of its computer systems had been in good faith. 70 This has certainly turned out to be true. Most courts applying Rule 37(e) have issued sanctions for spoliation when a party has failed to suspend particular aspects of its computer systems after a preservation duty attached. 71 Thus, the Advisory Committee did impose a duty to stop the routine destruction of electronic data in certain circumstances despite its earlier misgivings about doing so. 72 And though this duty did not extend to all data, it was broad enough to encompass materials considered relevant to perceived or pending litigation The Safe Harbor Established an Intermediate Standard for Imposing Discovery Sanctions Despite some confusion regarding when a litigant s preservation duty arose, the Advisory Committee was clear regarding the measure for imposing discovery sanctions. 74 The party s intervention to modify or suspend certain features of that routine operation to prevent the loss of information, if that information is subject to a preservation obligation. ). 69. Id.; see Peskoff v. Faber, 244 F.R.D. 54, 60 (D.D.C. 2007). 70. See Disability Rights Council of Greater Wash. v. Wash. Metro. Transit Auth., 242 F.R.D. 139, 146 (D.D.C. 2007). 71. See, e.g., Arista Records LLC v. Usenet.com, Inc., 608 F. Supp. 2d 409, (S.D.N.Y. 2009); cases cited infra Part III.C.1. But see Escobar v. City of Houston, No , 2007 WL , at *19 (S.D. Tex. Sept. 29, 2007) (holding the Safe Harbor protected defendant from sanctions despite neglecting to suspend the overwriting features to its electronic communications server). 72. FED. R. CIV. P. 37 advisory committee s note (2006 Amendment) ( The good faith requirement of Rule 37[e] means that a party is not permitted to exploit the routine operation of an information system to thwart discovery obligations by allowing that operation to continue in order to destroy specific stored information that it is required to preserve. ). The Advisory Committee s confusing statements on this issue seem to evince its position that there is considerable uncertainty as to whether a party particularly a party that produces large amounts of information nonetheless has to interrupt the operation of the electronic information systems it is using to avoid any loss of information because of the possibility that it might be sought in discovery, or risk severe sanctions. REPORT, supra note 1, at app. C Id.; see infra Part III.B. 74. REPORT, supra note 1, at app. C-83.

14 2010] 37(e) SAFE HARBOR 329 Committee deemed an intermediate standard best suited for determining whether sanctions should issue for data lost as the result of a computer system s operation. 75 The intermediate benchmark resulted from a compromise between two competing proposals in the original draft rule. As initially designed, the proposed rule would have imposed sanctions based on a negligence standard. 76 In an effort to balance this provision, the Advisory Committee alternatively proposed that sanctions be imposed for reckless or intentional conduct. 77 Each proposal, however, was sharply criticized for its shortcomings. 78 The negligence standard was attacked since it essentially afforded no protection from sanctions than that already developed by case law. 79 Indeed, it was worse than the status quo because a litigant could arguably be punished for any mistake in interrupting the routine operation of a computer system. 80 For instance, a party could possibly be sanctioned for failing to suspend a records management policy despite preserving an alternative source of that deleted data. 81 In contrast, the intentional standard was considered too lenient; sanctions might not issue for genuinely nefarious conduct. 82 Moreover, it might be too difficult for litigants to 75. Id. ( The present proposal establishes an intermediate standard, protecting against sanctions if the information was lost in the good faith operation of an electronic information system. ). 76. Id., at app. C-84; see Inventory Locator Serv., LLC v. PartsBase, Inc., No MaV, 2005 WL , at *13 n.8 (W.D. Tenn. Oct. 19, 2005) (finding support in the earlier version of Rule 37(e) that defendant s preservation duty did not attach until nearly sixteen months after the action was commenced); Convolve, Inc. v. Compaq Computer Corp., 223 F.R.D. 162, 177 (S.D.N.Y. 2004) (citing to the early draft version of Rule 37(e) as support for its holding that no sanctions should issue for data destruction). 77. REPORT, supra note 1, at app. C Id. 79. Id. 80. Id.; see Escobar v. City of Houston, Civil Action No , 2007 WL , at *19 (S.D. Tex. Sept. 29, 2007) (refusing to order sanctions for destruction of electronic data where alternative source of requested evidence was produced in discovery). 81. REPORT, supra note 1, at app. C-84; see Gippetti v. United Parcel Serv., Inc., No. C RMW (HRL), 2008 WL , at *4 (N.D. Cal. Aug. 6, 2008); Escobar, 2007 WL , at *18 19; Healthcare Advocates, Inc. v. Harding, Earley, Follmer & Frailey, 497 F. Supp. 2d 627, 641 (E.D. Pa. 2007). 82. REPORT, supra note 1, at app. C-84.

15 330 MINN. J. L. SCI. & TECH. [Vol. 11:1 establish the necessary intent for sanctions to issue under such a standard. 83 Ultimately, an intermediate standard, with the touchstone of good faith, became the operative benchmark under Rule 37(e). 84 Though its criteria were somewhat nebulous, a good faith standard would ultimately provide courts with leeway to appropriately balance a litigant s conduct under the circumstances of a case. 85 Such an approach resembled the manner in which the Eighth Circuit previously decided Stevenson v. Union Pacific Railroad Co. 86 and Morris v. Union Pacific Railroad. 87 In Stevenson, the Eighth Circuit affirmed a negative inference instruction issued by the trial court. 88 That sanction was ordered for defendant Union Pacific s destruction of recorded voice radio communications between railroad dispatchers and the crew of a train that had just struck plaintiff s vehicle. 89 The taped conversation had been erased prior to the commencement of litigation pursuant to defendant s policy of reusing voice tapes by overwriting their contents after ninety days. 90 Though erased several months prior to litigation, the court held that evidence of the communications should have been maintained. 91 The tape was the only source of evidence reflecting the observations the train crew made just after the accident occurred. 92 Moreover, the defendant had kept similar voice tapes in other circumstances when the tapes would absolve the company of liability. 93 And 83. Id.; see Morris v. Union Pac. R.R., 373 F.3d 896, (8th Cir. 2004) (describing the difficulty in establishing intent). 84. REPORT, supra note 1, at app. C-85. But see Keithley v. Home Store.com, Inc., No. C SI (EDL), 2008 WL , at *3 (N.D. Cal. Aug. 12, 2008) (declaring that violations of Rule 37 may invite sanctions even for negligent conduct). 85. See United Med. Supply v. United States, 77 Fed. Cl. 257, (2007) (noting that, among other things, Rule 37(e) was causing courts to reconsider enhanced proof requirements... in favor of a flexible intent requirement ). 86. Stevenson v. Union Pac. R.R. Co., 354 F.3d 739 (8th Cir. 2004). 87. Morris v. Union Pac. R.R., 373 F.3d 896 (8th Cir. 2004). 88. Stevenson, 354 F.3d at Id. 90. Id. at Id. at Id. 93. Id.

16 2010] 37(e) SAFE HARBOR 331 though no effort was made to keep the tape, the defendant ensured that other, possibly exculpatory evidence was preserved. 94 Such details confirmed that defendant s conduct was intentional and negated its showing that destruction of the tape was in good faith. 95 In contrast, the Eighth Circuit in Morris vacated an adverse inference instruction in a strikingly similar case. 96 Like Stevenson, Morris involved a plaintiff who had been injured in a train collision. 97 And just as in Stevenson, Union Pacific had allowed a taped conversation between a train crew and railroad dispatchers to be erased in connection with its ninety-day retention policy. 98 Regardless, the Eighth Circuit found an adverse inference instruction was not appropriate. 99 Unlike Stevenson, it concluded that Union Pacific did not intentionally eliminate the taped conversation. 100 Nor was there anything to suggest that some evidence was maintained while other, more crucial proof was destroyed. 101 In the end, there was no evidence that belied the defendant s good faith. 102 Though it reached opposite results in Stevenson and Morris, the Eighth Circuit s reasoning is instructive. The court did not limit its analysis to merely determining whether or not information was eliminated by the routine operation of a computer system. 103 Instead, it weighed various factors to glean the defendant s intentions and decide whether sanctions were appropriate. 104 In like manner, courts should evaluate the circumstances of a given matter to understand whether data was lost in good faith or not Id. at Id. at Morris v. Union Pac. R.R., 373 F.3d 896, 903 (8th Cir. 2004). 97. Id. at Id. at Id. at Id. at Id Id. at Stevenson v. Union Pac. R.R. Co., 354 F.3d 739, (8th Cir. 2004); Morris, 373 F.3d at Stevenson, 354 F.3d at ; Morris, 373 F.3d at See THE SEDONA CONFERENCE WORKING GROUP ON ELECTRONIC DOCUMENT RETENTION & PRODUCTION, THE SEDONA CONFERENCE, THE SEDONA PRINCIPLES: BEST PRACTICES RECOMMENDATIONS & PRINCIPLES FOR ADDRESSING ELECTRONIC DOCUMENT PRODUCTION 72 (Jonathan M. Redgrave

17 332 MINN. J. L. SCI. & TECH. [Vol. 11:1 C. A NATIONAL STANDARD FOR GUIDING RECORDS MANAGEMENT DECISIONS IN CONNECTION WITH LITIGATION As finalized, Rule 37(e) struck a balance between competing forces. 106 On the one hand, the Safe Harbor could protect organizations from arbitrary retention obligations. 107 On the other hand, aggrieved parties could still seek relief for evidence destruction caused by bad faith, grossly negligent conduct, and ordinary negligence. 108 A uniform benchmark had thus been established that could guide organizations choices for records management in connection with litigation. 109 As discussed in Part Three, the resulting Safe Harbor jurisprudence would delineate some key trends that would further assist in this process. III. KEY TRENDS FROM RULE 37(e) RECORDS MANAGEMENT JURISPRUDENCE In the years that have passed since Rule 37(e) was adopted, various courts have addressed the Safe Harbor. In very few instances have courts invoked the rule to shield parties from sanctions. 110 Regardless of the final result, et al. eds., 2d ed. 2007) [hereinafter 2007 SEDONA PRINCIPLES] (providing various suggestions for how courts can evaluate an organization s good faith for purposes of applying Rule 37(e)); see also THE SEDONA CONFERENCE WORKING GROUP ON ELECTRONIC DOCUMENT RETENTION & PRODUCTION, THE SEDONA CONFERENCE, THE SEDONA CONFERENCE COMMENTARY ON LEGAL HOLDS: THE TRIGGER & THE PROCESS 9 10 (Conor R. Crowley et al. eds., 2007) [hereinafter SEDONA CONFERENCE COMMENTARY ON LEGAL HOLDS] (listing factors to consider when determining whether litigation is reasonably anticipated ) See REPORT, supra note 1, at app. F See id. at app. C Pandora Jewelry, LLC v. Chamilia, LLC, No. CCB , 2008 WL , at *8 (D. Md. Sept. 30, 2008) Subject to certain conditions, courts may still issue sanctions independent of Rule 37(e) under their inherent authority. Escobar v. City of Houston, No , 2007 WL , at *17 n.5 (S.D. Tex. Sept. 29, 2007); Allman, supra note 54, at See, e.g., Sue v. Milyard, No. 07-cv REB-MJW, slip op. at 2 (D. Colo. Aug. 6, 2009), 2009 WL (holding that the deleted video footage was destroyed pursuant to the normal operating process of the camera s computer system before a preservation duty was triggered); Southeastern Mechanical Services, Inc. v. Brody, No. 8:08-CV-1151-T-30EAJ, slip op. at 3-4 (M.D. Fla. July 24, 2009), 2009 WL (finding in part that plaintiff had no duty to preserve certain backup tapes); Escobar, 2007 WL , at *17 19 (holding that sanctions were not warranted where defendant preserved an

18 2010] 37(e) SAFE HARBOR 333 opinions interpreting Rule 37(e) have generated a number of helpful guidelines and trends. Such developments should be instructive for organizations as they look to streamline document retention policies with litigation requirements. Part Three will explore some of the principal developments that have occurred over the past three years and their pertinence to records management. A. RECORDS MANAGEMENT STRATEGY MUST CONSIDER ACCOUNTABILITY TO THIRD PARTIES One of the principal advances in Safe Harbor jurisprudence is that records management policies must now consider an organization s accountability to third parties. 111 This is not a novel concept. 112 It was previously considered in connection with disputes over preservation and production of paper documents. 113 However, the extension of this doctrine to electronic data in Phillip M. Adams & Associates, L.L.C. v. Dell, Inc. was a significant development. 114 In Phillip M. Adams, the court issued sanctions in a patent infringement action for the defendants spoliation of source code, along with related documents and communications, after a preservation duty attached. 115 As part of its holding, the court refused the defendants request to invoke the Safe Harbor given their failure to operate their computer systems in good faith. 116 In reaching this decision, the court zeroed in on the unreasonably narrow scope of the defendants retention alternative source of the sought after evidence ); Columbia Pictures Indus. v. Bunnell, No. CV FMCJCX, 2007 WL (C.D. Cal. May 29, 2007) (declining to order sanctions since defendant was not on notice that it should retain the requested server log data), aff d, 245 F.R.D. 443 (C.D. Cal. 2007) Phillip M. Adams & Assoc., L.L.C. v. Dell, Inc., 621 F. Supp. 2d 1173, 1193 (D. Utah 2009) Lewy v. Remington Arms, 836 F.2d 1104, 1113 (8th Cir. 1988); Kozlowski v. Sears, Roebuck & Co., 73 F.R.D. 73, 76 (D. Mass. 1976) See, e.g., Lewy, 836 F.2d at 1112 (explaining that a reasonable retention policy would keep records of customer complaints longer than other records); Kozlowski, 73 F.R.D. at (holding that defendant s policy of indexing customer complaints was so byzantine and obstructionist that it precluded the retrieval of relevant documents) Adam Cohen, Angst Over Data Retention Ruling May Be Misplaced: Adams Actually Was in Line with Legal Precedent and Evolving Best Practices at U.S. Corporations, 31 NAT L L.J. 51 (2009) Phillip M. Adams, 621 F. Supp. 2d at 1191, Id. at 1192.

19 334 MINN. J. L. SCI. & TECH. [Vol. 11:1 practices. 117 For example, the server hosting the defendants e- mail was programmed to automatically delete all mail not manually archived by employees. 118 Such an arbitrary policy entirely reliant on the discretion of individual employees apparently suited the defendants business model given the limited storage capacity on their servers. 119 Such a narrowly tailored policy was unreasonable: A court and more importantly, a litigant is not required to simply accept whatever information management practices a party may have. A practice may be unreasonable, given responsibilities to third parties. While a party may design its information management practices to suit its business purposes, one of those business purposes must be accountability to third parties. 120 The defendants parochial retention practices did not account for the duties they owed to third parties in connection with litigation. 121 This practice ultimately negated any possibility that the Safe Harbor could apply. 122 Phillip M. Adams is a watershed case for records management. Organizations that fail to implement reasonable retention policies or that narrowly customize them to limit expense or exposure to liability may run afoul of this decision. By focusing only on reducing operating expenses, companies may cause the opposite result to occur. Organizations may exponentially increase their bottom line by failing to factor in legal considerations to third parties. B. THE GOOD, THE BAD, AND THE UGLY EXAMPLES OF REASONABLE AND UNREASONABLE RECORDS MANAGEMENT POLICIES The difference between a reasonable and unreasonable document retention policy can make all the difference for an organization when it comes to maximizing revenues and minimizing operation expenses. 123 As evidenced by the judiciary s application of Rule 37(e), that distinction is equally applicable in legal proceedings. In litigation, sanctions are less 117. Id. at Id. at , Id. at Id. at 1193 (emphasis added) Id. at Id See PUBLIC HEARING, supra note 8, at 369.

20 2010] 37(e) SAFE HARBOR 335 frequently imposed on organizations that develop and follow a reasonable policy. In those instances involving a bad policy, or where there is no policy at all, data destruction typically prevents application of the Safe Harbor. The cases of Gippetti v. United Parcel Service, Inc., 124 Connor v. Sun Trust Bank, 125 and Keithley v. Home Store.com, Inc. 126 exemplify these trends in post-rule 37(e) case law. 1. The Good Gippetti v. United Parcel Service, Inc. One of the general hallmarks of an effective records management policy is that it addresses the particular needs of an organization while balancing them against litigation imperatives. 127 This point is well illustrated in Gippetti v. United Parcel Service, Inc. 128 In Gippetti, the court refused to sanction defendant United Parcel Service ( UPS ) for allowing copies of electronic tachograph records to be overwritten pursuant to its document retention policy. 129 Plaintiff, a terminated delivery truck driver, 130 argued that UPS should be sanctioned for allowing destruction of the tachograph records. 131 Plaintiff asserted that the records, which track a vehicle s speed and movements, would have established his age discrimination claim by showing that he drove his delivery route at the same rate as other, younger drivers. 132 The court rejected the sanctions request due in significant part to the good faith operation of UPS s computer servers. 133 Developed several years before the instant lawsuit, UPS s nationwide practice was to purge tachograph records after thirty-seven days to reduce a growing stockpile of data. 134 Another factor favoring UPS was its decision to modify the 124. Gippetti v. United Parcel Serv., Inc., No. C RMW (HRL), 2008 WL (N.D. Cal. Aug. 6, 2008) Connor v. Sun Trust Bank, 546 F. Supp. 2d 1360 (N.D. Cal. 2008) Keithley v. Home Store.com, Inc., No. C SI (EDL), 2008 WL (N.D. Cal. Aug. 12, 2008) See 7 MOORE S FEDERAL PRACTICE, 37A.56[1] (3d ed. 2009) See Gippetti, 2008 WL , at * Id. at * Id. at *1. Plaintiff was discharged for sleeping on the job and stealing time from UPS. Id Id Id Id. at * Id. at *2.

21 336 MINN. J. L. SCI. & TECH. [Vol. 11:1 operation of its servers after a preservation duty was triggered such that records still in its possession could be produced. 135 In any event, the records were held to have little if any relevance to the plaintiff s claims. 136 What information, if any, the plaintiff needed from the records could be gleaned from time cards produced by UPS. 137 Gippetti provides a favorable benchmark against which organizations can analyze their retentions practices. The reasonableness of the policy at issue was measured by its good faith business purpose, the length of time it had been in place, that it was actually followed, 138 and that the destruction of records occurred before a preservation duty attached. 139 The policy was also effective since it eliminated one source of information while maintaining another, equally viable source that could be used in litigation. 140 Finally, promptly modifying the policy to retain the requested records after the preservation duty was triggered eliminated any doubt regarding UPS s good faith under Rule 37(e) The Bad Connor v. Sun Trust Bank In contrast to Gippetti stands the problematic retention policy in Connor v. Sun Trust Bank. 142 Pursuant to that retention policy, the defendant bank s server purged all more than thirty days old that had not been manually archived outside the company s system. 143 That policy, coupled with a companion practice of overwriting back-up tapes after ten days, ensured that any that a bank employee neglected to archive would be automatically deleted after forty days. 144 Such retention practices proved inadequate in Connor. A 135. Id. at * Id. at * Id See Doe v. Norwalk Cmty. Coll., 248 F.R.D. 372, 378 (D. Conn. 2007) (issuing sanctions for, among other reasons, the defendant s failure to follow its document retention policies) Gippetti, 2008 WL , at * Id. at * Id. at * Connor v. Sun Trust Bank, 546 F. Supp. 2d 1360, 1367 (N.D. Cal. 2008) Id Id.

22 2010] 37(e) SAFE HARBOR 337 negative inference instruction was imposed on the bank for failing to preserve a key relating to the plaintiff s Family and Medical Leave Act claim. 145 Through its general counsel, the bank issued a timely litigation hold and instructed its employees most likely to have data relevant to the lawsuit to preserve that information. 146 Nevertheless, the bank employee responsible for discharging plaintiff did not preserve any e- mails during a crucial six-week period, including the key at issue. 147 Though it was never established whether the was intentionally deleted or simply wiped out by the bank s e- mail server, this fact was irrelevant. 148 The was deleted in contravention of the company s preservation instructions. 149 Worse, it created an inference that other potentially relevant e- mails were also deleted. 150 The Connor holding is instructive on multiple fronts. Like the defendants in Phillip M. Adams, 151 the bank unreasonably relied on its employees to determine what s should or should not have been kept. 152 The drawback to such an approach is that employees may neglect to archive (or consciously discard) their s or other data. 153 That is precisely what occurred with the bank employee who terminated plaintiff. 154 A reasonable policy would have addressed this issue by retaining s, back-up tapes or both for a longer period of time. Regardless, the bank should have modified its and back-up tape retention policies as part of its litigation hold. 155 Had it done so, the deleted s likely would not have slipped through the cracks. 156 By failing to do so, the bank 145. Id. at Id Id Id Id. at Id. at Phillip M. Adams & Assoc., L.L.C. v. Dell, Inc., 621 F. Supp. 2d 1173 (D. Utah 2009) Connor, 546 F. Supp. 2d at Id. at Id. (noting that the employee in question fell behind in archiving her s) FED. R. CIV. P. 37 advisory committee s note (2006 Amendment) See Gippetti v. United Parcel Serv., Inc., No. C RMW (HRL), 2008 WL , at *1 (N.D. Cal. Aug. 6, 2008).